Nokia 2007 Annual Report Download - page 68

Customer financing
We have provided a limited amount of customer financing and agreed extended payment terms with
selected customers. In establishing credit arrangements, management must assess the
creditworthiness of the customer and the timing of cash flows expected to be received under the
arrangement. However, should the actual financial position of our customers or general economic
conditions differ from our assumptions, we may be required to reassess the ultimate collectibility of
such financings and trade credits, which could result in a writeoff of these balances in future periods
and thus negatively impact our profits in future periods. Our assessment of the net recoverable value
considers the collateral and security arrangements of the receivable as well as the likelihood and
timing of estimated collections. See also Note 35(b) to our consolidated financial statements for a
further discussion of longterm loans to customers and other parties.
Allowances for doubtful accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent
inability of our customers to make required payments. If the financial conditions of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required in future periods. Management specifically analyzes accounts receivables
and historical bad debt, customer concentrations, customer creditworthiness, current economic trends
and changes in our customer payment terms when evaluating the adequacy of the allowance for
doubtful accounts.
Inventoryrelated allowances
We periodically review our inventory for excess, obsolescence and declines in market value below cost
and record an allowance against the inventory balance for any such declines. These reviews require
management to estimate future demand for our products. Possible changes in these estimates could
result in revisions to the valuation of inventory in future periods.
Warranty provisions
We provide for the estimated cost of product warranties at the time revenue is recognized. Our
products are covered by product warranty plans of varying periods, depending on local practices and
regulations. While we engage in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of our component suppliers, our warranty obligations are
affected by actual product failure rates (field failure rates) and by material usage and service delivery
costs incurred in correcting a product failure. Our warranty provision is established based upon our
best estimates of the amounts necessary to settle future and existing claims on products sold as of
the balance sheet date. As we continuously introduce new products which incorporate complex
technology, and as local laws, regulations and practices may change, it will be increasingly difficult to
anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our
warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost
of product warranty could differ materially from our estimates. When the actual cost of quality of our
products is lower than we originally anticipated, we release an appropriate proportion of the
provision, and if the cost of quality is higher than anticipated, we increase the provision.
Provision for intellectual property rights, or IPR, infringements
We provide for the estimated future settlements related to asserted and unasserted past IPR
infringements based on the probable outcome of each potential infringement.
Our products and solutions include increasingly complex technologies involving numerous patented
and other proprietary technologies. Although we proactively try to ensure that we are aware of any
patents and other intellectual property rights related to our products and solutions under
development and thereby avoid inadvertent infringement of proprietary technologies, the nature of
our business is such that patent and other intellectual property right infringements may and do occur.
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